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What Does IRS Want with Your Nigerian Bank Account?
Do you own a bank account outside the US? Do you own assets, financial or other in Nigeria or other countries? Do you know that the US laws require such assets and investments, with few exceptions, be reported annually to the Internal Revenue Service (IRS)?
Renafrique has discovered that many Nigerians are unaware of a seemingly innocuous provision in the US Tax Code added as chapter 4 of the Internal Revenue Code, a few years ago. This provision requires that Foreign Financial Institutions (FFIs) provide information to the IRS on accounts maintained for citizens/residents of the US in those foreign institutions. The Institutions are required to report all individual account holders with end of year balances above a threshold of 50,000.00 USD.
In addition, the law dubbed Foreign Account Tax Compliance Act (FATCA) 2010, also requires US taxpayers who have foreign financial assets in excess of $50,000 (higher for bona fide residents overseas – $200,000 for single filers and $400,000 for joint filers) to report those assets every year on a new Form 8938 to be filed with the IRS 1040 income tax return. Also, a US taxpayer who owns more than 10% shares in a company registered in Nigeria or elsewhere will be subject to the reporting provisions and withholding.
The FATCA reporting requirement for Form 8938 is separate from the existing reporting requirement under the Bank Secrecy Act for the Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”) (formerly TD F 90-22.1). The implication is that an individual may have to file both forms and separate penalties may apply for failure to file each form.
The Foreign Bank and Financial Account provision of FinCEN requires that all U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts or signature authority over at least one financial account located outside of the United States and meet the reporting threshold must file FBAR.
The reporting requirement in this case is $10,000 at any time during the calendar year and the report must state the maximum value of the financial accounts maintained by a financial institution physically located in a foreign country. A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.
The FBAR, separate from the March 2010 FATCA addition to the tax code, is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported. Filing is done electronically through FinCENs BSA E-Filing System. There is no provision for requesting an extension of time to file an FBAR which is not filed with a federal tax return. The penalties for failure to file accurately, if not willful, is up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply.
But many Nigerian Americans and US green card holders are presently not aware of the game changing FATCA, which mandates the disclosure of all foreign financial accounts or offshore securities held by US citizens and resident aliens at the risk of stiff fines and penalties for non-compliance. Eventually, many may run afoul of the law, not intentionally, but due to sheer ignorance which is not a valid defense.
The worst aspect of the law is that it requires Nigerians who are dual citizens of Nigeria and the US, but live solely in Nigeria to comply with its reporting tax requirement. To escape the onerous and potentially costly legal requirement, many US citizens who live in Europe and Asia have reportedly renounced their US citizenship in favor of European and Asian citizenship. The fee to renounce U.S. citizenship is $2,350.00 and five years of tax returns; sometimes with an exit tax, and in some cases continued tax payment for ten more years.
This largely unnoticed law with widely reaching arms has attracted a lot of negative reviews within and outside the borders of US with most calling for its amendment. According to Tom Alciere, an aspiring US senator from New Hampshire who has been critical of the law, “around the world, people are learning that they are “citizens” of the U.S.A., and faced with criminal charges and devastating financial penalties for failing to report to Washington, D.C. their local bank accounts, when they don't even live in the United States, and under the laws of their country, they are citizens only of their country.”
A lot of foreign banks are resorting to locking out their US customers to avoid the intrusive reporting obligation which many view as modern imperialism made possible by the world's financial systems ties to the US dollar. As a result, American Citizens Abroad (ACA) developed and presented to congress, the IRS and Treasury a proposalfor Same Country Exemption to alleviate the problem of “lock-out” whereby some Foreign Financial Institutions (FFIs) refuse to do business with Americans because of FATCA reporting. Same Country Exemption would exclude the reporting of accounts owned by Americans abroad where the account is with a Foreign Financial Institution in the same country where the individual is resident. This would alleviate the filing burden for FATCA on Americans as well as the identification and disclosure of these accounts by the Foreign Financial Institution.
Republicans in Congress have attempted to repeal the Act but could not muster enough votes to pass the repeal law and current presidential candidates are divided on what to do with the law, with some pledging amendment and others vowing a repeal.
Even though Nigeria has not been listed by the US Treasury among the countries that signed the intergovernmental agreements (IGAs) with US, Nigerian banks have independently registered with the IRS and obtained FATCA Global Intermediary Identification Numbers (GIIN) to make them compliant with the law. As a result, all Nigerian banks and security entities that are invested in the US market are collaborating with IRS on remitting bank account details of Nigerians who are resident in US but maintain bank accounts and/or hold securities with them. The reportable information includes the identity and certain financial information associated with the account.
The participating Nigerian banks check their database for the following indicators in the account documentation to determine if any account holder is a “specified US person” for reporting to IRS:
According to FATCA, participating Nigerian banks will require any identified customers to submit required documents to confirm that they are resident in the US. If the customer does not want to (or cannot) forward the necessary information, and the participating bank does not have the relevant documentation in its archives, the bank is required by FATCA regulations to block or close the account.
However, since Federal Government of Nigeria has not signed the intergovernmental agreement with US, privacy advocates are concerned that it may be unlawful for Nigerian banks to provide the required information against Nigerian privacy laws and confidentiality obligation, statutes and the federal constitution of the Federal Republic of Nigeria without the consent of the account holders. FATCA rules foresee these issues, and require foreign financial institutions to obtain a valid and effective consent/waiver from identified customers but legal and civil rights experts are worried that such requirement cannot be fulfilled where a waiver is prohibited under local law or would be ineffective. FATCA requires that in cases where consent/waiver is not obtained within a reasonable period of time, the bank must transfer or block such account.
Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs according to the FBAR instructions and include a statement explaining why the filing is late. FinCEN's Regulatory Helpline is 800-949-2732 or 703-905-3975 (if calling from outside the United States).
The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
Foreign real estate held directly is not reportable.
Readers who are concerned about these filing requirements should contact a tax professional for advice.
@ Nigeria Diaspora Media